Chapter 10 Chapter 9 The Economic Model: It’s Time for a Rebirth

Relying on the government's factor subsidies, the subsidy reaches the export link, and the subsidy is actually given to foreign consumers.From the perspective of structural adjustment, as the key to solving the deep-seated contradictions in China's economy, what factors determine that our economy must undergo structural transformation and adjustment? Wei Jianing: In general, there are four factors that determine that we must adjust the structure.Look at long-term factors first.The development model of China's 30-year reform and opening up mainly relies on the high-speed growth achieved by factor price distortion.First, land prices are artificially lowered by local governments; then, labor is lowered by foreign-funded enterprises and private enterprises; then, capital prices are lowered by the central bank; finally, resource prices are lowered by the central government, that is, price controls.The price of the environment is actually depressed because environmental protection is not enough.However, all these factor prices are currently changing.If the land is actually transferred, the price should rise; the price of labor will gradually rise with the aging of the population; the price of funds will gradually rise with the liberalization of interest rates and the appreciation of the renminbi; Resource tax will be levied; in addition, with the strengthening of environmental protection, the price of the environment will also rise.

When the prices of these factors are all rising, the rapid development model relying on the distortion of factor prices and the development model relying on hidden preferential policies will be unsustainable.The "China's advantage" or "China's competitiveness" that we were once proud of first relied on this large number of hidden preferential policies.Relying on the government's factor subsidies, the subsidy reaches the export link, and the subsidy is actually given to foreign consumers.Now that pattern has run its course, an adjustment is needed.So in the long run, there is a requirement or pressure for an adjustment.Another factor is the pressure of the cycle.From the perspective of the economic cycle, in the past 30 years of reform and opening up, every time the economy has overheated, the country has had a rectification and adjustment.But this time, some economists have raised the issue of economic overheating since 2003, but the real adjustment actually started after the price hike in 2007.It was supposed to be a counter-cyclical adjustment, but it turned out to be a pro-cyclical adjustment because it came too late.This is also an important reason for the sharp decline in economic growth since September 2008.The third factor is the pressure from outside.The U.S. bubble burst, and demand shrank after the financial crisis. The external shrinkage affected China's exports, forcing China's economy to adjust.The fourth factor is the bursting of the domestic bubble.

In the short term, the bursting of the domestic bubble also poses pressure for adjustment.In this situation, the purpose of focusing on expanding domestic demand is to cushion the impact of adjustments.Otherwise, the impact force is too great and the adjustment is over-adjusted, and it may not be able to get up for a long time. It is necessary to correctly and comprehensively learn the experience and lessons from the Asian financial crisis in 1998.The factors and pressures you mentioned jointly determine that China must make up its mind to adjust its economic structure in order to reduce potential crises or get out of them.So whether it is mid-to-long-term structural adjustment or the recent expansion of domestic demand, do they have a common strength?

Wei Jianing: Here, I need to emphasize one point. As far as the current situation of the Chinese economy is concerned, whether it is adjusting the structure or expanding domestic demand, it must rely on reform.Now many people think that the problem can be solved by expanding domestic demand, but I think we must correctly and comprehensively draw on the experience and lessons from the Asian financial crisis in 1998. The Asian financial crisis in 1997 caused the domestic economic growth rate to decline. In 1998, the policy of expanding domestic demand was launched, but in fact, since 1999, the focus of the central government has shifted to reform.

The reforms at that time, first, the central government made an important decision on the reform of state-owned enterprises, and the State Economic and Trade Commission at that time also proposed the goal of "breaking out of trouble" for state-owned enterprises in three years. The second is to promote the development of private enterprises, giving private enterprises the right to export foreign trade (previously, private enterprises had to sell their products to state-owned trading companies before they could be exported); the State Economic and Trade Commission also established a small and medium-sized enterprise department to promote the development of small and medium-sized enterprises.

The third is to reform the housing system and stop welfare housing allocation, thus starting the real estate market.This round of China's economic take-off actually played a big role in real estate. The fourth is the reform of state-owned commercial banks. At that time, four asset management companies were established, 1.4 trillion yuan of non-performing assets were stripped off, and the burden of state-owned banks was lifted. The fifth is the reform of the social security system. The National Social Security Fund was established, and the pilot reform was first started in Liaoning. In this way, through a series of reforms and a package of policies to stimulate domestic demand, China's economy reached an inflection point in 2001, and since 2003 it has achieved rapid growth of more than 10% for five consecutive years.Therefore, we must comprehensively and correctly summarize this period of historical experience.Can it be said that the expansion of domestic demand at that time had the meaning of "growing melons and reaping beans"?The real domestic demand did not pull, but reversed the situation of an export-driven economy?It can be said that there are also factors in this aspect, but more is not the case.For example, the housing reform and the export rights of private enterprises have brought unexpected effects, so this reform has indeed played a key role.Therefore, I have repeatedly emphasized the need to take sufficient measures to reform.

Social security must have money as protection.As Premier Wen Jiabao pointed out in his government work report, some issues involving the immediate interests of the people have not been fundamentally alleviated, and there are many urgent problems in social security, education, medical care, income distribution, and social security.The market order is not standardized, the market supervision and law enforcement are not in place, the social credit system is not perfect, and food safety incidents and serious accidents in production safety occur one after another.How do you think the rule of law guarantees market economic order?

Jiang Ping: Regarding this issue, it involves the "Social Security Law", which is currently the hottest topic, and is currently being widely solicited for opinions.As for the social security system (as an important "safety net" in society), all walks of life in general support it.How can a country do without a sound social security system? The "Social Security Law" has been discussed many times before on how to improve it, but in the end it has been stranded. The most important reason is that social security must be guaranteed by money, and there is no sufficient financial funds to protect the interests of all the people.Here, how to include 800 million farmers in the universal insurance is very difficult.

Frankly speaking, the social security system has developed along with the continuous increase of the country's financial resources.Some cities are now issuing consumer coupons. It can be seen that as long as they are regions with strong economic strength, the protection will be more complete.Medical care and social insurance are the most prominent issues in China at this stage.I don't have much specialized research, but when it comes to income distribution and investment in public affairs, most of them are not about legislation, but more about law enforcement.For example, raising taxes on high-income earners now has basic legal provisions, but whether it can narrow the gap between the two poles is a question of law enforcement.It is difficult to achieve effective monitoring. The key is that law enforcement is too loose and lacks the strength of law enforcement and punishment.We have discussed the collection of inheritance tax many times, but now there is no further discussion.Inheritance tax is a very important fiscal revenue in developed countries. There are media reports that after the death of some nobles in Japan, the land inheritance is astronomical, and the inheritance tax must be paid in cash. Of course, the land must be sold.From this point of view, inheritance tax is indeed an important means of "killing the rich and helping the poor".Although China does not have the problem of too much private land, but now there are more and more real properties, there is a lot of room for inheritance tax collection.

"Wall Street is drunk", China must drink it itself.The foundation of China's economic recovery in the first half of the year is not solid. Regarding the monetary policy in the second half of the year, why do you emphasize that "not only the aggregate policy, but also the structural policy"? Xia Bin: First of all, we must point out that the reason why we should pay attention to the structural issues in the recovery is that the unreasonable and unbalanced structure of our entire economic system has affected the stability of our entire economic system and the sustainability of growth.The purpose of discussing structural issues is to discuss the issue of GDP growth, and to discuss the issue of total volume.The issue of overcapacity is currently discussed, of course, it also involves the issue of unsustainable growth, but the current discussion of structural issues is not just to discuss structural issues of a subsystem in the middle of the economic system, such as energy supply issues, supply structure issues of a certain product, etc. .The current discussion of this issue is based on the total amount. Whether the economy can sustain the recovery is a major issue.Regarding the structural issue, I think that there are many misunderstandings in many views nowadays, and it is easy to confuse several different types of issues. We should clearly understand and clarify this issue.For example: regional structure, urban-rural structure issues, issues involving fiscal transfer expenditures, allocation of investment funds, and consumption expenditures.

Generally speaking, the discussion is about the distribution of a given total consumption, but more often it is about how to give preference to backward areas and rural areas under a certain total investment.The industrial structure refers to the structure of the primary, secondary and tertiary industries, the rational allocation of a certain amount of investment, and the issue of investment itself.Product structure refers to the allocation of production capacity and investment volume. It involves preventing product surplus, resource waste, environmental pollution, and non-performing loans.However, solving this structural problem cannot solve the main economic contradiction in China at present, nor can it solve the main structural contradiction in China's recovery.The problem of income distribution structure is more related to the problem of increasing the income of low-income groups and the problem of expanding consumption.However, first, improving the structure of income distribution is not the whole meaning of increasing the consumption rate of residents, because the consumption policy itself involves other important policies, such as investment policies, which need to be coordinated.Second, we are talking about the structural imbalance in the macro economy, the structural imbalance between the aggregate and the overall system, so it is an indicator related to the aggregate, that is, the imbalance between investment, consumption, and net exports.Therefore, the problem of income distribution is not a direct manifestation of the total amount.The irrational income distribution structure is one of the important reasons for the imbalance of the aggregate structure. The problem of high savings and low consumption is caused by the poor resolution of the income distribution problem. Therefore, it can be said that this is a second-level structural problem. The problem of high savings and low consumption structure is the result and a concentrated reflection of the unreasonable structure of various causes.The main structural problem in the current Chinese economy is high savings and low consumption.Savings minus investment equals exports.Now exports have decreased, exposing a series of problems.If consumption does not increase, it may be that at some point in the future, there will be either excess capacity in this area or excess capacity in that area.Why is it said that high savings and low consumption are the most important structural problems?Because after the crisis in the United States, the global recovery will take a long time.We are now making up for the export gap by expanding investment, but over-investment may lead to deficits and overcapacity. Therefore, in order to maintain a long-term growth rate of 8% or even higher, we must increase consumption. This is the main contradiction.Because the deficit cannot be continuously widened by underinvestment.It is unsustainable to keep expanding the deficit.If the recovery of the United States and the world is difficult, exports are gone, and China's production capacity must maintain a certain growth rate, it must rely on Chinese consumers.I said in front of Premier Wen Jiabao on July 7 that Bush Jr. compared the US crisis to "Wall Street is drunk".Resolving the principal contradiction by increasing consumption is the key to maintaining growth.In this sense, maintaining consumption means maintaining growth and people's livelihood.To protect consumption is to protect growth and people's livelihood. It is also in this sense that I told Premier Wen that day that the focus of economic work in the second half of the year and next year is not a simple aggregate policy, but a structural policy; it should not only highlight investment policies, but should highlight long-term difficult-to-solve consumption. Policies; we must focus on short-term policies, and more importantly, the combination of short-term and medium-term policies.In this sense, the key direction of macro-control should be on the basis of continuing to maintain the trend of economic recovery, highlighting consumption-oriented structural adjustment.First of all, at the meeting of the Economic Committee of the National Committee of the Chinese People's Political Consultative Conference at the beginning of the year and the expert symposium convened by Premier Wen on July 7, I talked about the need to formulate a "consumption-oriented" national development program based on China's national conditions, and it must be issued from top to bottom Increase the index of the consumption rate of residents every year.Currently, there is no plan to stimulate industry consumption among the top ten plans for stimulating industries.From the State Council to local governments, they should set quantitative targets for increasing residents' consumption, set targets just like the targets for energy conservation and emission reduction, and strictly grasp them. After three to five years, they will naturally reverse themselves.But it also needs a series of supporting measures to support and guarantee.I'm just talking about a simple idea now, if feasible, you might as well study the details of the operation further.This is the first point.Second, improve various policies on income distribution.Not much to say about this, it involves many aspects, and the government is doing it now, for example, rural medical insurance, urban subsistence allowances, medical education and so on.However, I think that the personal income tax threshold can be raised a little bit more to benefit the people, expand consumption, and ultimately help GDP and tax revenue. Furthermore, the government should not only calculate the revenue account of the Ministry of Finance of the year, but also calculate the national revenue account and the national balance sheet account, so as to stimulate the economy by giving benefits to the people.China is about to become the second largest economy in the world, and I think we can do a little bit from letting some people get rich first to getting rich together.Here are two suggestions from the perspective of economic balance: one is to further expand the scope of dividend distribution of state-owned enterprises, and local state-owned enterprises must pay dividends.Why do central state-owned enterprises pay dividends, but local state-owned enterprises do not?In addition, the ratio of dividends can be adjusted dynamically, and capital has the final say on how to adjust.The dividend money is unified to enrich the financial budgets at all levels, save the poor, and supplement consumption.The second is to plan to reduce the government's shareholding ratio in state-owned enterprises, including non-listed companies and groups.Now it is the listed companies that reduce their holdings. I mean that some groups above listed companies can consider according to the national strategy. Except for the need to maintain relative holdings and absolute holdings, the remaining shares can be sold slowly in a planned way .China is a country with a high savings rate, and there is plenty of private funds, so that ordinary people and private capital can invest.The money obtained from the transfer of equity by the government is included in the national budget and used to expand consumption and support agriculture, rural areas and farmers. China is not without money now, but has money.I often say that the 18 trillion yuan assets of central enterprises can become the "meat in a bowl" of ordinary people if they are done well.And if it is sold with reference to the price-earnings ratio, the price will not be low. So, how to actively cultivate the source of capital income for residents' consumption? Xia Bin: As I mentioned just now, the transfer of some shares by the government to the private sector only changes the structure of the holders, and the investment rate of the whole society remains unchanged.Cultivate new sources of capital income for residents' consumption: Among the 4 trillion yuan, half will be divided in 2009, and there will be more next year. It should be "beneficial to the people."As long as there are profitable and profitable projects, private funds are allowed to participate, including roads, transportation and other projects.Local governments should not issue bonds to carry out projects.Secondly, the countdown and restrictions order relevant departments to come up with plans to relax private funds from entering relevant fields as soon as possible.If not, commission market research.In addition, cultivating sources of capital income, that is, increasing residents’ sources of property income, has been included in the documents of the 17th National Congress of the Communist Party of China.But we should not encourage ordinary people to invest in virtual assets and use the real estate market as a source of capital income and property income. This is very detrimental to long-term macroeconomic stability.We should treat the real estate market as a consumer market and continue to regulate it.Another is to speed up the reform of household registration management.It is difficult to do this in big cities at the moment, and small and medium-sized cities should be released first, so that some migrant workers can settle in small and medium-sized cities after earning money.While developing small and medium-sized cities and towns, promote urban consumption and increase residents' consumption.It is very important to grasp urbanization construction, which is an important way to change the problem of high savings and low consumption structure.In short, I think that policies and measures to increase consumption should be the same as Premier Wen Jiabao's "4 trillion" investment, "you must act quickly and punch hard", otherwise it will delay the opportunity. In an attempt to obtain a "dividend" based on superstition, some people always have to pay for their ignorance. "Do not make basic scientific demonstrations, and do not draw conclusions through systematic research based on empirical data", what level of problem does this reflect? Chen Zhiwu: I think this incident reflects the problems of China's education system.It is precisely because of China's education system, from kindergarten to university, that instead of cultivating people to ask questions, think independently and conduct scientific reflection, they blindly accept and memorize things by rote.So it is very regrettable that the May 4th Movement 90 years ago advocated "Mr. Sai", but 90 years later, the entire Chinese society is still a society that believes in superstition and does not believe in science.Compared with the foresight of the May Fourth youth at that time, the people of our era are sorry for the struggle of those martyrs. After 90 years, the modern resources we have are much better than in the past, but we still cannot grasp the spirit of "Mr. Sai".In the final analysis, the problem lies in education.We might as well look at the upgrading of China's industrial structure, which is definitely a typical example of being constrained by education.China's education focuses on hard technology, and the resulting talent structure makes it very difficult for China to realize the transformation from manufacturing to service industry.From kindergarten to graduate school, Chinese education has always emphasized rote memorization for exams and hard skills that can be seen and touched.Such an education system makes China almost only able to engage in manufacturing. To build an innovative society, we must focus on the cultivation of critical thinking ability, and we must also pay attention to the training of comprehensive humanities and social sciences.Only focusing on hard technology and training engineering thinking, it is difficult to establish value without research on the market and human nature.This is not the case in the West.In order to support an innovative society dominated by the service industry, since kindergartens in the United States, the training of critical thinking is the focus of education.The school requires children to master scientific methods before the fourth grade. There are five main steps: one is to raise the question, which is why; The fourth is analysis, which proves the correctness of the hypothesis based on actual data; the fifth step is summary, which records all the processes and draws conclusions.My two daughters have been educated in the United States since childhood.By the fourth grade, they have mastered scientific analysis to look at everything, and it has become an instinctive thinking ability. Whenever they see something, they don’t accept it immediately, but ask: why?Therefore, education in the United States is not for exams, but for people to learn to think critically, develop their analytical skills, and avoid being fooled.The cultivation of speculative ability allows students to naturally doubt and examine anything they hear, and then look for evidence to prove whether the statement is logically, factually or statistically tenable.This habit seems simple, but it is a very important beginning to cultivate independent thinking. At the same time, they can also express their thoughts clearly and give people enough persuasion.But now the education in Chinese society is not very optimistic.For example, when applying for stock codes, everyone does not like numbers ending in 4, but likes 8 and 9. No one will doubt the return of stocks ending in 8 and 9.Later, I conducted a study with a professor at Peking University, and the results showed that stocks ending in 4 have higher long-term returns.In an attempt to obtain a "dividend" based on superstition, some people always have to pay for their ignorance.This shows that China is not yet a society dominated by "Mr. Sai".After 200 years of globalization, Western civilization has brought a huge impact to China, but when people have not figured it out for a while, and even some decision makers have not figured it out, they found that the backward system did not It hinders the development of China's science and technology and economic scale, and it still makes the sea change in the past 30 years.This is amazing, because the advantage of globalization is that advanced economic foundations can be imitated, and thus rapid growth can be achieved. This is why the so-called scientists and engineers in China do not fully understand the essence of "Mr. Sai".After all, an engineer may not need to figure out the truth, as long as you can make it according to the principle, it can be produced.It is the free trade and soft world order brought about by globalization that have allowed China to achieve such rapid development in just 30 years—so that more people have become numb and do not ask "why".